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30/10/2016
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Ken Wolff
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Newstart
On 20 October, the ABS released its labour force survey data for September 2016. The media duly reported the drop in unemployment from an upwardly revised 5.7% for the previous month to 5.6% but most also picked up that this was largely a result of a drop in the participation rate, from 64.7% to 64.5%.
Firstly, a few explanations. The participation rate was traditionally a measure of all those aged between 15 and 64 (the ‘working age population’) who were ‘in the workforce’ and, of course, owing to students and stay at home parents, and other factors, this would never be 100% — around 70% was usually very good. However, the ABS now uses the total population aged 15 and above which I think can be a little misleading because it encompasses many elder retirees — including over 450,000 people aged 85 and over, who I doubt would be considering work.
‘In the workforce’ includes those who are actually employed, whether full-time or part-time, and those who are unemployed but are looking for and are available for work. So a fall in the participation rate usually means that people have dropped out of the workforce and given up looking for work — at least for now. It should also be noted that to be counted as ‘employed’ a person only needs to have worked one hour in the week of the survey — not what most of us would call ‘employed’ but it is the international definition and the ABS uses it, arguing that even an hour’s work is contributing to the economy. What that does mean is students and retirees who may be working no more than a couple of hours a week are included in the employment count.
The ABS also provides raw figures, ‘seasonally adjusted’ figures and ‘trend’ figures. I will mostly use the seasonally adjusted figures which attempt to smooth out known large variations, such as the number of school leavers entering the workforce at the end of each year and seasonal workers who come and go from employment at particular times. The trend figures can be interesting for what they show statistically in terms of where the figures are heading. Except where otherwise referenced all the data I have used comes from the ABS website, including downloading some of their Excel spreadsheets for more detailed data, so I do not separately reference each of these individual sources.
Having said all that, and leaving aside debate about the quality of the ABS labour force data (which has been questioned), I want to pay attention to what these percentages actually mean in terms of people.
The 0.1% drop in unemployment meant that there were 12,500 fewer people unemployed. That may sound like a reasonable improvement but even at 5.6% the number unemployed is 705,100 and that is a lot of people whichever way you look at it — without including their families. But somehow, the government, the bureaucrats advising them, economists and even most of the media seem to overlook the scale of that number by focusing simplistically on the percentage. That is over 705,000 people whose spending power is limited which not only makes life hard for them but, through reduced consumption, also impacts the economy.
The situation is exacerbated when we consider the long-term unemployed — those unemployed for 12 months or longer. As at August 2016 there were 169,000 long term unemployed (based on ABS data) or about 24% of the unemployed. But in September the Department of Social Security
released data showing it had 290,161 long-term job seekers on Newstart Allowance in August. No matter which figure you use, that is a large number of people ‘doing it tough’ for a long time and many of them will have little chance of ever finding suitable work after such lengthy periods of unemployment.
Considering the participation rate is a little more difficult given the way the ABS now calculates it. On their calculation, it would seem that almost 40,000 people have dropped out of the workforce but, as that now includes all people 15 and over, a number of those could be retirees. Focusing just on the working age population, at least 25,000 people (probably more) have stopped looking for work. Not large numbers in the overall scheme of things but significant in terms of the number of people involved.
Employment dropped by 9,800 but that partly hides the fact that 53,000 full-time jobs were lost (part-time employment increased by 43,200). That is on top of the continuing loss of full-time jobs over many months now. While the seasonally adjusted monthly figures vary, including both rises and falls, the trend estimates for full-time employment have been consistently lower for each month since December 2015, suggesting full-time employment is on a downward slide.
The September figure for full-time employment is the lowest since June 2015 and since a peak of 8.217 million in full-time employment in December 2015, 102,000 people have lost full-time work (or 54,000 in trend terms and 271,000 on the raw numbers). In that same time, part-time employment increased by 162,800 but, as this includes all those working one hour or more, much of it may not involve significant hours of work.
Even that is only part of the story. Since July 2014 the ABS has been providing data on ‘underemployment’ in the workforce: this includes those engaged full-time but actually working part-time ‘for economic reasons’ and those employed part-time who would prefer more hours. In the first category, there were 75,900 people, predominantly male (60,800), an increase of 3,700 over the August figure. There were 979,900 part-time workers who would prefer more hours, including about 600,000 females (that was a decrease of about 30,000 on the August figure). That is almost 9% of those employed.
If we add the unemployed, for total ‘underutilisation’ of the labour force, we get 1,760,900 people not able to contribute fully to the economy even though they wish to do so — that is about 14% of the workforce. How can our economy be going well if 1.8 million people are not contributing to production and consumption as much as they could? In economic terms they have less scope for discretionary spending: it is normal that as income falls a greater portion of it has to be spent on essentials, such as food and utilities.
To make things worse, we can also consider the data the ABS provides on those ‘not in the labour force’ (NILF) as it reveals more information about ‘hidden’ unemployment. The most recent data I could find was for 2014 (released in February 2015). A further explanation is required here. In the labour force surveys people are asked if they looked for work in the week of the survey and if they could start within four weeks: if they do not meet those criteria they are classified as not in the labour force. The 2014 NILF figures show 21,700 people who were actively looking for work but could not start within four weeks and another 53,200 who were ready to start work. In addition, there were 851,000 people who wanted work, could have started within four weeks, but were not actively looking, including 102,100 ‘discouraged jobseekers’ a majority of whom were over 55. There are many reasons why people are not looking for work, including family issues and illness, but they remain interested in returning to the workforce. While the figures may have changed since 2014, it is clear that we are talking about hundreds of thousands of people who would like to be in work but for a variety of reasons, including just giving up, are not. So now, including these ‘hidden’ unemployed, and those ‘underutilised’ in the labour force, we are talking about something like 2.5 million people. Imagine what could be done if we created sufficient jobs and hours of work to meet that demand!
Total hours worked in September increased by 4 million hours to 1.66 billion hours. This is more interesting in trend terms: an increase of 2.2 million hours and the fourth consecutive increase after declines in the previous five months but still 2.4 million hours below the December 2015 peak. Overall, total hours worked has been trending upwards since 2000 but that is largely driven by population and workforce growth. Callam Pickering from CP Economics pointed out that work hours have actually been
trending downwards over that same time when calculated per person. That is a sign of the increase in part-time work.
Ad Astra recently wrote about
Turnbull’s planning black hole and it is no more evident than in the lack of response to these figures. What is the government doing to provide work for the 705,000 unemployed, or to provide more work for the one million who are underemployed? What is it doing to encourage people to remain in the workforce, rather than dropping out through the sheer frustration of being unable to find suitable work? I would suggest that many of those dropping out of the workforce have found the ‘cost’ (in economic terms, which includes effort and time as well as money) of finding work too high. I have little doubt that the onerous Centrelink job search requirements would be contributing to that ‘cost’. Increasing the time before which a person is entitled to receive Centrelink payments will not help. And what will the government do to address the ‘hidden’ unemployed, those not in the labour force but who would like to be?
The government’s approach seems to be that it should all be left to ‘the market’, to businesses, both large and small, to provide employment — eventually! That does nothing to support people in the present nor even to offer hope of employment or better hours in the short term. And even in the medium term it may be no more than a mirage. As I pointed out in ‘
Are governments ready for the coming economic and social changes’, we are witnessing the rise of the ‘gig economy’. While that may provide some entrepreneurial opportunities, many businesses will move to a labour-force model of part-time or short-term employment. Perhaps the rise in part-time work already evident in the ABS data may be its beginnings. Australia now has the third highest part-time workforce in the OECD, representing 32% of those in employment.
Simply relying on business to create employment, without government support, may also be fraught. The recent
NAB quarterly business survey showed ‘weaker profits and softer trading conditions have led to a moderation in business conditions’. Businesses did think that conditions would be reasonable over the next three to twelve months and capital expenditure plans remained strong.
ABS data, however, suggested that business investment fell 5.4% in the June quarter, and more than 17% over the year but much of this was said to be driven by the winding down of the resources boom. Despite that qualification, the NAB survey found that ‘a broader non-mining recovery appeared to stall in the September quarter’. There was also a deterioration in the retail and wholesale sector — to me, not surprising if we have 2.5 million people with lesser income than would be provided by any work, full-time work or more hours of part-time work.
Other business indicators showed sales from manufacturing rose 0.2% (but ?0.6% and also down 2.9% over the year in trend terms). Companies’ gross operating profits rose 6.9% but were flat over the year (or flat in the June quarter and falling 4.3% over the year in trend terms). While profits may have jumped in the June quarter, wages rose only 0.8%. So where is that money going? — not into new jobs!
All in all, the government is ignoring that labour force data is about people, not just a series of percentages. It is ignoring the unemployed, the ‘hidden’ unemployed, and ignoring the problems created by underemployment and the loss of full-time jobs. Turnbull seems to believe that businesses will come good and provide the jobs or that people will create their own jobs, all part of his new innovative and agile economy. But how do the long term unemployed fit into that scenario? How do 705,000 unemployed survive until the economy comes good with little or no government intervention? How do one million people find the work hours they are seeking? How much production and consumption are we losing by having 2.5 million people not fully engaged in the economy? How are those 2.5 million people faring? — has anybody in government bothered to ask that?
As Ad Astra asked, where is Turnbull’s plan to make job growth happen? After all, this is people we are talking about.
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